CP22/2: Strengthening our financial promotion rules for high risk investments, including cryptoassets

Consultation opened
19/01/2022
Consultation closed
23/03/2022
23/03/2022

We are consulting on proposals to strengthen our financial promotion rules for high-risk investments, and for authorised firms which approve and communicate financial promotions.

Read CP22/2

Update - 28 February 2022

A few errors have been identified internally in the cost benefit analysis of this consultation paper since publication. These have been updated in the document and are listed below for transparency. The corrections are isolated and do not alter any other figures in the document, so the total costs of the proposals are unaffected. 

Costs of strengthening the consumer journey for firms communicating financial promotions for high risk investments (excluding cryptoassets)

  • In paragraph 86, '23 hours' to read legal text per medium firm corrected to '25 hours'
  • In paragraph 87, '£400' on average per firm for familiarisation and legal costs corrected to '£300'

Costs to S.21 approvers

  • In paragraph 99, ‘3.5 hours’ to read the policy document corrected to ‘4.5 hours’
  • In paragraph 100, '34 hours' to read legal text per medium firm corrected to '62 hours' and '6 hours' to read legal text per small firm corrected to '10 hours'
  • In paragraph 104, '£41,600' on average per s21 approver for one-off IT cost corrected to '£22,600.' This was due to an upper bound being used in the calculation, rather than a lower bound, in error

Why we are consulting

We are making changes to protect consumers from harm. These proposals build on the questions we asked in our Discussion Paper (DP21/1) on how we could strengthen our financial promotions rules.

Your feedback to that Discussion Paper has helped to shape the changes we are consulting on.

What we are consulting on

In this Consultation Paper, we propose changes to:

  • our classification of high-risk investments
  • the consumer journey into high-risk investments
  • strengthen the role of firms approving and communicating financial promotions
  • apply our financial promotion rules to qualifying cryptoassets

Who this applies to

This consultation will primarily interest:

  • consumers and consumer organisations
  • authorised firms which approve financial promotions for unauthorised persons (section 21 approvers), whether for high-risk investments or otherwise
  • authorised firms which communicate financial promotions relating to investment business
  • issuers of non-mainstream pooled investments, speculative illiquid securities and non-readily realisable securities
  • investment-based crowdfunding platforms and other intermediaries distributing investments to consumers
  • peer-to-peer platforms
  • firms operating in the cryptoasset market
  • trade bodies for the investment-based crowdfunding, peer to peer and crypto-asset sectors

The consultation will also interest:

  • any authorised firm in the consumer investments sector
  • investment companies, and trade bodies for this sector
  • issuers of other types of investments
  • financial advisers
  • asset managers with experience of managing illiquid, long-term assets
  • potential investors in long-term asset funds

Background to our consumer investment work 

We want to deliver a consumer investment market that works well for people who want to be able invest with confidence, save for planned and unexpected life events and for the businesses in the real economy for which it provides essential funding. Our Consumer Investments Strategy, published on 15 September 2021, sets out our plan to achieve this.

A key part of the strategy is addressing the harm from consumers investing in high-risk investments that do not match their risk tolerance. This can lead to unexpected and significant losses for consumers and undermine wider confidence in investments, making it harder for all firms to raise capital. We do not want to restrict consumers who want to invest, but we do want them to be able to identify and access investments that suit their circumstances and attitude to risk.

So we are consulting on changes in this area, following our recent interventions to address harm from high-risk investments, including banning the mass-marketing of speculative illiquid securities and our new Investment Harms campaign, as well as the Treasury’s confirmation that promotions for cryptoassets will be brought within the financial promotions regime.

This package of measures should also be considered alongside the Treasury’s recent consultation to reform exemptions from the financial promotions requirements when promoting to high-net worth and sophisticated investors.

As part of this work, we commissioned extensive research into the consumer investments market, including our own behavioural testing research notes.

Next steps  

This consultation has now closed. We will publish feedback on responses and issue a Policy Statement once we have reviewed your comments.

We propose to give firms 3 months from publishing final rules to comply with the new requirements for the consumer journey and the new requirements for section 21 approvers.

For requirements relating to cryptoasset promotions, we propose that any changes apply from the date qualifying cryptoassets are brought within the financial promotion regime.

Page updates

28/02/2022: Information added Errors identified in the cost benefit analysis of this CP since publication.
25/01/2022: Information changed Paragraph 99 of the cost benefit analysis, ‘3.5 hours’ corrected to ‘4.5 hours’